Strong Sales Lift Delhaize Net 7.6%
AUGUST 6, 2009, 8:45 A.M. ET Wall Street Journal
BRUSSELS -- Belgium-based supermarket operator Delhaize Group SA on Thursday posted a 7.6% rise in second-quarter net profit, helped by higher sales, the stronger U.S. dollar and cost cutting.
However, the company also raised concerns about a deepening price war in the U.S.
Delhaize -- which operates the Food Lion, Hannaford and Sweet Bay chains in the U.S., as well as Delhaize supermarkets in Belgium -- saw its U.S. sales grow in the second quarter, even in dollar terms, because it offered comparatively low prices and aggressively promoted its own value brands. However, competitors have pledged to aggressively cut their own prices, raising fears that Delhaize's advantage might be eroded.
Net profit came in at €125 million ($180.2 million) in the three months ended June 30, up from €116 million a year earlier, though the growth in net was curbed by much higher taxes and interest payments.
The tax rate during the year-earlier quarter was a record-low 22.6%, compared with the 34.8% the company faced in the latest quarter. Delhaize said sales increased 14% to €5.08 billion from €4.45 billion, boosted by the strength of the dollar against the euro. At constant exchange rates sales would have increased 3.6%.
More than half Delhaize's 2,670 stores are in the east of the U.S. and the company generates about 70% of its revenue in the country. Its U.S. net sales were €3.53 billion in the second quarter, up from €2.97 billion a year earlier, as the strong dollar buoyed earnings in euro terms. The company also said the average number of transactions, and the number of items bought at each transaction, increased, and it was helped because both the Easter and 4th of July holidays fell in the second quarter. At constant currency rates, sales were up 3.4%.
But last week Supervalu Inc., one of Delhaize's main competitors in the U.S., said it would aggressively cut prices after its earnings tumbled 30% as customers shunned its undiscounted foods. Supervalu Chief Executive Craig Herkert said that its attempts to use only limited discounts to lure customers to full-priced goods hadn`t worked.
Amid signs of an intensifying price war among U.S. retailers, Safeway Inc. the previous week reduced its outlook for the year, citing customers shifting purchases to lower-priced goods. Its CEO, Steven Burd, said the company was having to cut prices in areas it hadn't wanted to because rivals were doing the same.
Delahaize's CEO, Pierre-Olivier Beckers, defended the company's position, saying it was protecting its markets "very well" and its price positioning was still very competitive.
The company is "particularly satisfied with our continued positive comparable store sales," which were achieved through "sharp prices and targeted promotional offers," Mr. Beckers said. Same-store sales rose 0.2% in the U.S. and 1.9% in Belgium in the second quarter.
Still, Chief Financial Officer Stefan Descheemaeker said the company could only maintain its full-year forecast, despite the second-quarter profit rise, because it was facing the intensified price war and because comparative figures for the second half of the year were very strong.
AUGUST 6, 2009, 8:45 A.M. ET Wall Street Journal
BRUSSELS -- Belgium-based supermarket operator Delhaize Group SA on Thursday posted a 7.6% rise in second-quarter net profit, helped by higher sales, the stronger U.S. dollar and cost cutting.
However, the company also raised concerns about a deepening price war in the U.S.
Delhaize -- which operates the Food Lion, Hannaford and Sweet Bay chains in the U.S., as well as Delhaize supermarkets in Belgium -- saw its U.S. sales grow in the second quarter, even in dollar terms, because it offered comparatively low prices and aggressively promoted its own value brands. However, competitors have pledged to aggressively cut their own prices, raising fears that Delhaize's advantage might be eroded.
Net profit came in at €125 million ($180.2 million) in the three months ended June 30, up from €116 million a year earlier, though the growth in net was curbed by much higher taxes and interest payments.
The tax rate during the year-earlier quarter was a record-low 22.6%, compared with the 34.8% the company faced in the latest quarter. Delhaize said sales increased 14% to €5.08 billion from €4.45 billion, boosted by the strength of the dollar against the euro. At constant exchange rates sales would have increased 3.6%.
More than half Delhaize's 2,670 stores are in the east of the U.S. and the company generates about 70% of its revenue in the country. Its U.S. net sales were €3.53 billion in the second quarter, up from €2.97 billion a year earlier, as the strong dollar buoyed earnings in euro terms. The company also said the average number of transactions, and the number of items bought at each transaction, increased, and it was helped because both the Easter and 4th of July holidays fell in the second quarter. At constant currency rates, sales were up 3.4%.
But last week Supervalu Inc., one of Delhaize's main competitors in the U.S., said it would aggressively cut prices after its earnings tumbled 30% as customers shunned its undiscounted foods. Supervalu Chief Executive Craig Herkert said that its attempts to use only limited discounts to lure customers to full-priced goods hadn`t worked.
Amid signs of an intensifying price war among U.S. retailers, Safeway Inc. the previous week reduced its outlook for the year, citing customers shifting purchases to lower-priced goods. Its CEO, Steven Burd, said the company was having to cut prices in areas it hadn't wanted to because rivals were doing the same.
Delahaize's CEO, Pierre-Olivier Beckers, defended the company's position, saying it was protecting its markets "very well" and its price positioning was still very competitive.
The company is "particularly satisfied with our continued positive comparable store sales," which were achieved through "sharp prices and targeted promotional offers," Mr. Beckers said. Same-store sales rose 0.2% in the U.S. and 1.9% in Belgium in the second quarter.
Still, Chief Financial Officer Stefan Descheemaeker said the company could only maintain its full-year forecast, despite the second-quarter profit rise, because it was facing the intensified price war and because comparative figures for the second half of the year were very strong.
